Japan Utilities Offset Idled Reactor Losses by Lifting Rates

Jacob Adelman and Masumi Suga

February 3, 2014 — 2:53 AM EST

Japanese utilities including Tokyo Electric Power Co. leaned on customer rate increases to boost their financial performances in the first nine months of their fiscal years, as idled nuclear plants kept fuel costs high.

Tokyo Electric and the nation’s five other nuclear utilities that raised electricity rates returned to profit or narrowed losses in the nine months ended Dec. 31. Utilities that didn’t raise rates, including the country’s third-biggest, Chubu Electric Power Co., saw profits drop or remain unchanged.

The financial results, released last week, reveal rate increases as one of the few options available to the companies as they seek to counter expenditures on fossil fuels to make up for lost nuclear capacity. All of Japan’s 48 functioning atomic reactors are idled for safety checks after the March 2011 Fukushima nuclear disaster.

“The rate increases seem to be providing them with a lot of protection and cover on the revenue line,” said Tom O’Sullivan, founder of Tokyo-based energy consultant Mathyos. “This should fall away absent further rate increases. Obviously the pressure now is on nuclear and restarting the nuclear.”

Electricity Sales

Shares of Kansai Electric Power Co., which narrowed losses on a rate increase, fell 7.8 percent to 1,024 yen at the 3 p.m. close of trading in Tokyo, their biggest one-day drop since June 5. They were the third-worst performing stock on the Nikkei 225 Stock Average today.

Hokkaido Electric Power Co. shares dropped 9 percent to 984 yen, the most in 8 months. Tokyo Electric shares declined 3.4 percent to 454 yen while the Nikkei 225 was down 2 percent.

With the loss of nuclear plants, which produced more than 25 percent of Japan’s electricity before the disaster, the companies have had to rely on oil, coal and gas-fired plants. The cost of importing those fuels has driven the country into a trade deficit for 18 straight months while the current-account shortfall widened to a record in November.

Nuclear Reactors

Tepco, as the operator of the wrecked Fukushima Dai-Ichi atomic station is known, expects to pay a record 2.9 trillion yen ($28.3 billion) for fuel in the current fiscal year, during which all of its nuclear reactors were offline, up from 2.7 trillion yen a year ago, Managing Executive Officer Katsuyuki Sumiyoshi said at a Jan. 31 press conference.

Tepco’s operating profit was 231.3 billion yen in the nine months ended Dec. 31, compared with an operating loss of 114.5 billion yen a year earlier, the nation’s biggest utility said in a statement.

The return to profit was led by increased revenues after the utility, which serves 29 million customers in the Tokyo metropolitan area, raised electricity rates for households by 8.5 percent in September 2012. The increase boosted electricity sales by 9.9 percent to 4.3 trillion yen.

Net income was 772.9 billion yen after a government injection into the utility’s fund for payouts to people and companies affected by the Fukushima disaster.

Tepco’s operating profit target for the year ending March is 134 billion yen, compared with an operating loss of 222 billion yen the previous year.

Profits Decline

Kansai Electric, Japan’s second-biggest utility, forecast a net loss of 98 billion yen for the full year ending March 31, compared with a loss of 243.4 billion yen the previous year. Kansai Electric attributed the improved performance to a rate increase in May.

The utility’s net loss was 34.7 billion yen during the nine-month period, compared with a loss of 152 billion yen a year earlier.

Chubu Electric, meanwhile, forecast a 75 billion yen net loss for the full year, compared with a loss of 32.2 billion yen the previous year. Chubu’s net loss was 31.6 billion yen for the nine months ended Dec. 31, as opposed to a 2.29 billion yen loss the previous year.

Chubu applied to the Japanese government in October for a 4.95 percent increase in household rates starting in April. The utility also plans to raise rates for companies by an average 8.44 percent.

Deferred Repairs

Hokuriku Electric Power Co. and Chugoku Electric Power Co., which also haven’t raised rates to cope with the increased fuel costs, saw profits decline or remain unchanged.

Tepco also cut staff and deferred repair work to keep its expenses from ballooning due to the increased fossil fuel purchases from abroad amid a depreciating Japanese currency, the utility said. Ordinary expenses rose 1.9 percent to 4.67 trillion yen, compared with a 12.3 percent increase the previous year.

The company won support from the government and its biggest lenders on Jan. 15 for a business recovery plan after the nuclear disaster three years ago almost destroyed the company. The plan hinges on the restart of two reactors as soon as July at the Kashiwazaki-Kariwa nuclear plant, the world’s biggest, in an effort to reduce its dependence on fossil fuels.

Turnaround Plan

“It’s difficult to provide precise forecasts about restarts at the Kashiwazaki-Kariwa plant,” Tepco’s Sumiyoshi said. “We don’t deny that there is an increasing risk to our earnings if restarts happen later than planned.”

The turnaround plan also includes more than 1 trillion yen in additional cost cuts by the utility that is now under government control. These include slashing fuel costs by 650 billion yen a year and setting up a joint venture with other utilities to purchase as much as 40 million metric tons of liquefied natural gas a year.

The utility will cut 2,000 jobs as part of its cost reductions and will shift to a holding company structure by 2016.

The following table shows the reported net loss or net income at Japan’s nine nuclear plant operators for the nine months ended Dec. 31, 2013 and Dec. 31, 2012 and their forecasts for this financial year. Figures are in billions of yen.

*Tokyo Electric’s 9-month operating profit was 231.331 billion yen compared with an operating loss of 114.456 billion yen in the same period a year ago. ---------------------------------------------------------------- *T